Right now ATVI sits at 72usd and Microsoft will buy at 95usd/share. Does that not mean since the deal is likely to go through that if I just buy and hold my 72usd will just become $95? Is there something I’m missing?
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It’s under scrutiny in several countries with the UK doing an in depth review. The difference (merger arbitrage) is the risk the market is currently assigning to the deal not going through. Plus a couple of dollars to account for cost of opportunity.
If the deal doesn’t go through ATVI is going to cratter in line with the rest of the market. They have been “stable” because of the merger when compared with the rest of the gaming industry.
With that said… Buffet has been constantly buying ATVI betting the deal goes through. In case it makes you feel better losing/winning money with grandpa Warren.
It’s basically free money but there’s still a small chance that UK/EU will make trouble which may lead to a delay or courts. So the main risk that it takes longer than mid of next year. It’s still extremely likely to close. At worst if they deny it without possible concessions they need to go to court and then they have to redo everything they did wrong until they finally let it happen but this can become a lengthy process in the worst case.
You just said it yourself: “likely”. EU regulators are in the midst of their antitrust probe with a provisional answer expected Nov. 8th. Sony has been very vocal in raising the alarm for antitrust (hypocritical yes, but MSFT is likely to hamper cross platform games such as CoD). I would say this deal is very uncertain.
Same thing with SAVE merger, theyre in talks of being bought for $25 per share but the deal is under scrutiny.
The risk is that there will be no deal. EU regulations, US regulations etc, all have to approve this big deal. Risk for no deal is at 95-72 = 23 dollars per share.
Why settle for a 32% gain, 19 Jan 24 82.5 calls are 7.70 yielding 62%
There is no such thing as free lunch in 2022 financial markets. Lol
There is always the risk of the deal not happening. But then u still own a solid company. I had another failed merger play with Siltronic. Bought in at 140 for a 145 tender. Shits at 56 now. Soo yeah not free money at all.
My impression as to the still-existing ATVI arbitrage gap:
* EU/UK had their opening decision volley as ‘need more info’. Saudi Arabia’s thumbs up not moving the dial much
* TWTR recent wackiness giving tech takeover arb players PTSD
* Sony and Google digging in for a fight (GOOG will whine about cancelling Stadia, and meanwhile Sony whines while acquiring studios themselves)
* Video game sector overall weakness, since seen as a CoVid lockdown play
* Risk/return ratio of other plays when non-arb bluechips are also 30% off their highs without risk of hoping for favorable antitrust ruling
That said, I still long the ATVI arb play, as I think it will go through. I am not in the Kroger grocery arb play since I don’t think politicians will want to collect voter anger from higher food prices, even though from inflation unrelated to a Kroger merger.
Good luck in the arb game if you play
They purchase controlling shares at 95 but they sell shares on the market at 60. Why not ? I’m dumb and don’t know
Downvoted